World Economic Situation 2009

World Economic Situationand Prospects 2009Update as of mid-2009*

asdfUnited NationsNew York, 2009

* The present document updates World Economic Situation and Prospects 2009 (United Nations publication, Sales No. E.09.II.C.2), released in January 2009.

http://www.un.org/esa/policy/wess/wesp.html

EMBARGO:27 May 2009

12:00 Noon

New York time

ADVANCE UNEDITED VERSION

World Economic Situationand Prospects 2009Update as of mid-2009*

* The present document updates World Economic Situation and Prospects 2009 (United Nations publication, Sales No. E.09.II.C.2), released in January 2009.

http://www.un.org/esa/policy/wess/wesp.html

Faced with the worst recession since World War II, the United Nations’

baseline forecast for world economic growth has been revised

downward compared with the pessimistic scenario of the World Economic Situation and Prospects 2009 published in January. The

world economy is expected to shrink by 2.6 per cent in 2009 after an

expansion of 2.1 per cent in 2008 and nearly 4 per cent per year during

2004-2007. While a mild recovery is expected in 2010, risks remain on

the downside. Developing countries are disproportionately hard hit by

the crisis.

The global policy response has been unprecedented, including

monetary, fi nancial and fi scal measures to stabilize fi nancial markets and

revive global growth. However, greater eff orts are needed, including

through better policy coordination and larger fi nancial transfers to

developing countries, in order to achieve a balanced process of global

demand refl ation which also allows developing countries to take

adequate countercyclical action, protect their vulnerable populations

and align the response with long-run sustainable development goals.

Summary

Contents

Summary

Global macroeconomic trends ............................................................................................................................................ 1

A synchronized downturn........................................................................................................................................................................ 1

Rising unemployment ................................................................................................................................................................................ 3

Setbacks in progress towards poverty reduction and other MDGs ............................................................................... 3

Regional Outlook .................................................................................................................................................................. 6

Developed economies ............................................................................................................................................................................... 6

Economies in transition ............................................................................................................................................................................. 8

Developing economies .............................................................................................................................................................................. 8

Rapidly deteriorating global economic environment for developing countries ........................................................... 11

Sharp reversal of private capital infl ows and rising costs of external fi nancing ..................................................... 11

World trade is collapsing and remittances are subsiding ..................................................................................................... 12

Mounting balance-of-payments problems ................................................................................................................................... 13

Policy challenges ................................................................................................................................................................... 14

Boxes

1 The impact of the crisis on the MDGs in Latin America ........................................................................................................ 5

2 Disorderly adjustment of global imbalances poses a continued risk ........................................................................... 15

Figures

1 Number of countries with declining GDP per capita, 2008-2010 ................................................................................... 3

2 Economic recovery under coordinated and uncoordinated global stimulus, 2009-2015 ............................... 17

Tables

1 Growth of world output, 2004-2010 .................................................................................................................................................. 2

2 Estimated impact of the crisis on extreme poverty, crisis versus pre-crisis scenarios, 2009 ........................... 4

1

Global macroeconomic trends

A synchronized downturn

Th e world economy is deeply mired in the most severe fi nancial and economic crisis since World War II. With its increasing impact both in scope and depth worldwide, the crisis poses a signifi cant threat to the world economic and social development, including to the fulfi lment of the Millennium Development Goals (MDGs) and other internationally agreed development goals. Th e crisis, if it prolongs much further, likely will also bear pro-found consequences for global security and stability.

World gross product (WGP) is expected to fall in the baseline scenario by 2.6 per cent in 2009, compared with positive growth of 2.1 per cent in 2008 and average an-nual growth of almost 4 per cent per year prior to the crisis during 2004-2007 (table 1). While a mild recovery in growth of WGP is possible for 2010, risks remain on the down-side. A more prolonged global recession is possible, if the vicious circle between fi nancial destabilization and retrenchment in the real economy cannot be suffi ciently contained and farther-reaching, concerted global policy actions are not taken. Between September 2008 and May 2009, the market capitalization of banks in the United States and Europe de-clined by 60 per cent (or $2 trillion). But despite enormous write downs and massive fi nan-cial sector rescue operations by Governments, problems have not gone away. Th e global credit crunch has continued straining the real economy worldwide. If fi nancial markets do not unclog soon and if the fi scal stimuli do not gain suffi cient traction, the recession would prolong in most countries with the global economy stagnating at lower welfare levels well into 2010. In addition, the fragile situation could be exacerbated if the A/H1N1 infl uenza virus outbreak in Mexico becomes a pandemic with signifi cant consequences for human life and economic activity.

In a more optimistic, but increasingly less likely scenario, world economic re-covery would begin in the second half of 2009 and WGP would expand by 2.3 per cent in 2010. Th is scenario would require problems in fi nancial markets to be, by and large, resolved in the fi rst half of 2009 with fi scal stimulus measures taking visible eff ect during the year. By May 2009, such conditions were far from present.

While the crisis originated in developed countries and these countries are also leading the economic downturn, developing countries are being hit hard as well through capital reversals, rising borrowing costs, collapsing world trade and commodity prices, and subsiding remittance fl ows. In the baseline scenario, world income per capita is expected to decline by 3.7 per cent in 2009. At least 60 developing countries (of 107 countries for which data are available) are expected to suff er declining per-capita incomes, while only 7 would register per-capita GDP growth of 3 per cent or higher—considered as the minimum re-quired growth rate for achieving signifi cant reduction in poverty—down from 69 countries in 2007 and 51 in 2008 (fi gure 1). Economic setbacks are expected across the board, though strongest in the Commonwealth of Independent States (CIS), Sub-Saharan Africa and Latin America. Also, the least developed countries (LDCs) will be severely aff ected, with growth decelerating by 3.5 percentage points from the robust growth witnessed in recent years.

2 World Economic Situation and Prospects 2009

Table 1Growth of world output, 2004-2010

Annual percentage change

2004-2007a 2008b 2009c

2010c

Baselinescenario

Optimisticscenario

Pessmisticscenario

World 3.8 2.1 -2.6 1.6 2.3 0.2

Developed economies 2.6 0.8 -3.9 0.6 1.1 -0.4

United States 2.6 1.1 -3.5 1.0 1.5 0.0

Japan 2.1 -0.6 -7.1 1.5 2.0 0.4

European Union 2.6 0.9 -3.5 0.0 0.6 -1.0

EU15 2.5 0.7 -3.7 -0.1 0.5 -1.1

New EU 5.5 4.0 -1.7 1.5 2.4 -0.4

Euro zone 2.4 0.8 -3.7 -0.1 0.5 -1.2

Other European 3.0 1.9 -3.0 0.1 0.7 -1.1

Other developed countries 3.1 1.0 -2.3 0.4 0.9 -0.5

Economies in transition 7.6 5.3 -5.1 1.4 2.4 -0.5

South-eastern Europe 5.3 4.2 -1.9 1.0 1.8 -0.3

Commonwealth of Independent States 7.8 5.4 -5.4 1.5 2.5 -0.6

Developing economies 7.1 5.4 1.4 4.3 5.5 2.0

Africa 5.9 4.9 0.9 4.0 5.3 1.7

North Africa 5.2 5.3 2.9 3.9 4.9 2.1

Sub-Saharan Africa 6.2 4.7 -0.1 4.0 5.5 1.4

Sub-Saharan Africa (excluding

South Africa and Nigeria) 7.1 5.5 1.5 4.5 6.3 1.6

East and South Asia 8.5 6.2 3.2 5.6 6.5 3.7

East Asia 8.5 6.1 3.0 5.6 6.5 3.9

South Asia 8.3 6.8 4.1 5.4 6.5 3.1

Western Asia 5.9 4.5 -0.7 2.9 5.0 -1.1

Latin America and the Caribbean 5.2 4.0 -1.9 1.7 3.2 -0.7

South America 5.6 5.3 -0.9 1.9 3.5 -0.5

Mexico and Central America 4.1 1.7 -4.3 1.2 2.3 -1.0

Caribbean 8.5 3.9 0.7 2.6 4.3 -0.8

Least developed countries 8.1 6.1 2.7 4.6 6.3 2.2

Least developed countries

(excluding Bangladesh) 8.6 6.2 2.1 4.5 6.5 1.7

Memorandum items:

World trade 7.8 2.4 -11.1 4.1 5.1 0.5

World output growth with PPP-based weights 4.9 3.3 -1.0 2.7 3.4 1.2

Source: UN/DESA.

a Average annual percentage change.

b Partly estimated.

c Forecast, based in part on Project LINK.

3Update as of mid-2009

Rising unemploymentTh e deepening of the global fi nancial crisis entails a heavy toll on employment worldwide. A rapid rise in the unemployment has been witnessed since 2008 and is expected to worsen in 2009-2010. Initial projections put the rise in unemployment at 50 million over the next two years, but as the situation continues to deteriorate, this number could easily double.1 Higher unemployment rates may persist for some time. Lessons from past fi nancial crises indicate that it typically takes four to fi ve years for unemployment rates to return to pre-crisis levels after economic recovery has set in. Th is is because massive rises in long-term unemployment and greater labour market “informalization”—exacerbated by return mi-grants and large-scale reverse migration from urban to rural areas—are very diffi cult to reverse. If these trends take root, the negative eff ects of the crisis will be long-lasting. As global recovery should not be expected before the end of 2009 and will be weak, at best, in 2010, most countries will need to achieve strong growth acceleration during 2011-2015 to off set the job destruction and displacement of workers caused by the crisis.

Setbacks in progress towards poverty reduction and other MDGs

Th e reduction in employment and income opportunities no doubt will lead to a considerable slowdown in progress towards poverty reduction and the fi ght against hunger. UN-DESA

1 International Labour Organization (2009). ‘The Financial and Economic Crisis: A Decent Work Response’, Paper submitted to ILO’s Governing Body Committee on Employment and Social Policy (document GB.304/ESP/2), Geneva: ILO

Figure 1Number of countries with declining GDP per capita, 2008-2010a

12

33

18

1

14

2

13

60

22

0

10

20

30

40

50

60

70

2008 2009 2010

Developed countries

Economies in transition

Developing countries

Source: UN/DESA.

a 2008 data are partly

estimated. 2009 and 2010

data are forecasts, according

to baseline scenario of WESP

update per mid 2009.


estimates that between 73 and 103 million more people would remain poor or fall into poverty in comparison with a situation in which pre-crisis growth would have continued (table 2). Most of this setback will be felt in East and South Asia, with between 56 and 80 million likely to be aff ected, of whom about half are in India. Th e crisis could keep 12 to 16 million more people in poverty in Africa and another 4 million in Latin America and the Caribbean. Th ese projections likely underestimate the true poverty impact of the crisis as the distributional consequences of the crisis are not adequately accounted for. Workers at the lower end of the job ladder, including youth and female workers, are more likely to lose their jobs or suff er income losses. Also, workers are already visibly shifting out of dynamic export-oriented sectors, and either becoming unemployed or displaced to lower productivity activities (including moving back from urban to rural areas). In China alone, 20 million workers were displaced in this sense at the end of 2008. Th ese trends are likely to jeopardize poverty reduction more structurally as it may take some time before economies readjust and workers can shift back to activities with higher remuneration.

A substantial slowdown in progress towards the other MDGs should be expected as well. Even prior to the crisis and despite signifi cant progress, many countries were not on track to meet most MDGs.2 Increasing income poverty and lower government revenue will also lead to lower public and private spending on social services, aff ecting

2 United Nations (2008) The Millennium Development Goals Report 2008, New York: UN-DESA.

Table 2Estimated impact of the crisis on extreme poverty, crisis versus pre-crisis scenarios,a 2009

Millions and per cent

Change in extreme poverty (below $1.25 per day) (crisis versus pre-crisis)

Number of poor(millions)

Change in poverty incidence(percentage points)

2009 vs 2004-2007 2009 vs 2008 2009 vs 2004-2007 2009 vs 2008

Economies in transition 0.9 0.9 0.3% 0.3%

South-eastern Europe 0.0 0.0 0.0% 0.0%

Commonwealth of Independent States 0.9 0.9 0.3% 0.3%

Developing economies 102.0 72.5 1.9% 1.3%

Africa 16.3 11.9 1.6% 1.2%

North Africa 0.4 0.3 0.2% 0.2%

Sub-Saharan Africa 15.9 11.6 1.9% 1.4%

East and South Asia 80.4 56.4 2.2% 1.5%

East Asia 29.0 27.2 1.5% 1.4%

South Asia 51.4 29.2 3.1% 1.8%

Western Asia 1.3 0.7 0.6% 0.3%

Latin America and the Caribbean 4.0 3.6 0.7% 0.6%

South America 3.2 2.9 0.8% 0.7%

Mexico and Central America 0.8 0.6 0.5% 0.4%

Caribbean 0.0 0.0 0.1% 0.1%

Source: UN-DESA based on per capita GDP growth estimates and forecasts of World Economic Situation and Prospects database and recent household

survey data for 69 countries drawn from the World Bank’s POVCAL database.

a Estimates represent the shortfall in poverty reduction caused by the drop in per capita income growth in 2009 as compared with average growth

in 2004-2007 and with 2008, respectively. The poverty threshold is the international poverty line of $1.25 per person per day at purchasing power

parity dollars. For the calculations it was assumed that income distribution stays constant in all country cases.


all other MDGs. If no swift countercyclical action is undertaken, signifi cant additional costs will have to be made to bring countries back on track towards the MDG targets set for 2015 likely requiring signifi cant additional eff orts and costs, though these may vary from country to country (see box 1).

The impact of the crisis on the MDGs in Latin America

Substantial slowdown in progress towards the MDGs should be expected as a consequence of the

global economic downturn. Unless additional action is undertaken promptly, many countries, espe-

cially in sub-Saharan Africa, are unlikely to meet most of the targets. The precise magnitude of the set-

backs caused by the global fi nancial and economic crisis is diffi cult to estimate and varies from country

to country according to existing fi scal policy space and institutional capacity to respond to the crisis.

A new study by UN-DESA, using a comprehensive modelling framework for six Latin

American countries, fi nds that a projected recession in 2009 and 2010 and a slow and gradual re-

covery towards pre-crisis growth levels by 2015 would put some of the region’s low-income coun-

tries (Bolivia, Honduras and Nicaragua) substantially further off track towards the MDGs for primary

school completion, child and maternal mortality and access to drinking water and sanitation.a

Brazil, Chile and Costa Rica, which seemed well on track towards achieving most of the MDGs by

2015, would fall short in meeting several targets because of the crisis (fi gure A).

Governments of Bolivia, Honduras and Nicaragua would need to spend an extra 1.5

to 2.0 per cent of GDP per year on education, health and basic services between 2010 and 2015

to achieve the MDGs, as compared with the pre-crisis scenario. This would come on top of an ad-

ditionally required annual social spending of 2 per cent of GDP in Bolivia, 5 per cent in Nicaragua

and 7 per cent in Honduras in the absence of the crisis. For Brazil, Chile and Costa Rica, the required

additional spending caused by the expected impact of the crisis would be between 0.5 and 1.5

per cent of GDP per annum. Clearly, additional costs of this magnitude may stretch government

Box 1

a Marco V. Sánchez and

Rob Vos (2009), ‘Impact

of the global crisis on the

achievement of the MDGs

in Latin America’, UN/

DESA technical paper (in

preparation). The analysis

uses an economy-wide

framework (MAMS) for

assessing the determinants

and costs of MDG

achievement.

Figure AImpact of the crisis on primary school completion and child mortality rates by 2015 in Latin American countries

Percentage change

-10.0

-5.0

-0.0

5.0

10.0

15.0

20.0

Primary school completion

Child mortality

Bolivia Honduras Nicaragua Brazil Chile Costa Rica

Source: Sanchez and

Vos (2009), ibid.

Note: Results refer to

percentage change in

primary school completion

rates and child mortality

rates, respectively,

comparing outcomes for

crisis and pre-crisis baseline

scenarios by 2015. The pre-

crisis scenario assumes that

the GDP growth trends of

2000-07 would continue up

to 2015. The crisis baseline

scenario assumes signifi cant

growth deceleration during

2009

and 2010, and gradual

recovery from 2011 to return

to pre-crisis GDP growth

rates by 2015.


Regional Outlook

Developed economiesIn the baseline scenario, GDP in the United States is expected to contract by 3.5 per cent in 2009 and to only recover to a meagre rate of 1.0 per cent in 2010, well below what is needed for recovery from the downturn. Th e slump in the housing sector that started in 2006 is still ongoing, while the credit crunch, asset price defl ation and rising unemploy-ment underpin sharp retrenchment of business investment and household consumption. Policy measures have been scaled up signifi cantly in 2009, including a continuous expan-sion of the balance-sheet of the United States Federal Reserve Bank, a new fi scal stimulus

fi nances, lead to unsustainable increases in public debt and become a source of macroeconomic

instability in the future, if recovery and sustained growth do not set in swiftly.

Further analysis shows that increased social spending would contribute to growth re-

coveries. However, countries would not return swiftly to pre-crisis levels of economic growth and

employment as spending on MDG-related services represents relatively low shares of aggregate

demand in these countries (fi gure B). Stronger growth eff ects are likely to emerge over time as

improved education and health outcomes underpin stronger productivity growth. The counter-

cyclical response becomes much stronger if the MDG strategy is complemented by needed in-

vestments in public infrastructure. For a full recovery, however, other factors need to contribute as

well, especially the resumption of external demand. This will require globally concerted stimulus

measures to take eff ect.

Box 1 (cont’d)

Average annual rate of growth in per cent

0.0 1.0 2.0 3.0 4.0 5.0 6.0

Costa Rica

Chile

Brazil

Honduras

Bolivia

Nicaragua

Crisis baseline

MDG plus infrastructure

MDG strategy

Gap to full recovery

Figure BSimulated countercyclical impact of increased MDG spending on GDP growth, 2010-2015

Source: Sanchez and

Vos (2009), ibid.


package of $787 billion, and the Public-Private Investment Programme of more than $1 trillion to dispose of non-performing bank assets. However, it will take time for these mea-sures to unclog the fi nancial system and to restore economic growth. Uncertainties remain about the eff ectiveness of these measures. With unemployment rising sharply and fi nancial de-leveraging continuing, the risk of the economy falling into a protracted defl ation is still increasing. In the optimistic scenario that things would fall into place by the third quarter of 2009, the United States economy could recover in the second half of the year and post growth of about 1.5 per cent in 2010.

Japan’s economy is falling into a deep recession. Th e severe downturn in global demand, particularly for automobiles, information technology and machinery, has led to a collapse of Japanese exports, causing sharply falling corporate profi ts, tightening fi nancial conditions, rising unemployment, declining household wealth, and weakening domestic demand. In response, the central bank reduced interest rates along with a number of other measures to stabilize fi nancial markets and ease corporate fi nancing. Th e government has adopted a series of fi scal stimulus packages, with additional government spending totalling about 5 per cent of GDP. In the outlook, GDP is expected to fall by 7.1 per cent in 2009. A mild recovery is possible in 2010, but this will be highly dependent on global recovery.

Western European economies have been hard hit by the crisis. GDP in the Euro area is expected to fall by 3.7 per cent in 2009 after registering 0.8 per cent growth in 2008. Despite the assumption that current fi scal and monetary stimuli gain some traction over the course of 2009, the EU economies should expect no more than a gradual stabi-lization of activity with an expected near zero growth of GDP in 2010. Economic woes diff er across Western Europe as countries face diff ering degrees of exposure to downturns in housing markets, construction sectors, manufacturing exports and banking sectors. Across the region, though, unemployment rates are surging and are expected to continue to increase even after the decline in output has stopped. On average, the unemployment rate in the Euro area is expected to increase to 10 per cent in 2009, up from 7.5 per cent in 2008.

Th e economies of the new EU member States have steadily deteriorated in 2008, with growth entering negative territory in the Baltic States and Hungary, and declining to nearly zero in the other countries in the last quarter of 2008. Th e sluggishness continued through the fi rst half of 2009, refl ected in double-digit declines in industrial production, heavy drop in exports and retail trade and depressed consumer and business confi dence. While the recession in the EU-15 can be accounted as the primary reason for this contrac-tion, the region is also aff ected by the contagion eff ect of the global fi nancial crisis causing sharply increased costs of external borrowing and the sudden stop in access to internation-al bank lending. GDP of the new EU member States is expected to shrink by 1.7 per cent in 2009 and to recover modestly by 1.5 per cent in 2010. In a more pessimistic scenario of no global recovery, these countries should expect economic stagnation in 2010.

Th e economies of Australia, Canada and New Zealand are also expected to shrink in 2009, suff ering from falling global demand and commodity prices. In Australia, the unemployment rate is expected to jump from 4.2 per cent of 2008 to over 6 per cent in 2009, and 8 per cent in 2010. In Canada, the rate is expected to surge to 9.0 per cent in 2009. Despite fi scal and monetary stimuli, only a mild recovery is expected in 2010, however, mainly on the back of the moderate recovery of the global economy if the base-line conditions prevail.


Economies in transitionEconomic conditions in the Commonwealth of Independent States (CIS) have deteriorated sharply from the end of 2008, aff ected by the global credit crunch, collapsing world trade and falling commodity prices, especially those of oil and metals, and—for some coun-tries—falling remittance fl ows. Regional GDP is expected to fall by 5.4 per cent in 2009, down by more than 10 percentage points from growth in 2008 and the average of the preceding seven years. A modest economic recovery is possible for 2010—with an average growth rate of about 1.5 per cent—but the risks are slanted to the downside. Th e resource-rich economies of the CIS have been able to take countercyclical policy measures, making use of saved fi scal resources and reserves accumulated during the oil-price boom. Th e Russian Federation, for example, has introduced stimulus measures totalling 9.1 per cent of GDP. Other economies lacking such a buff er have had to turn to the IMF for rescue. Belarus, Armenia, Kyrgyzstan and Ukraine signed stand-by arrangements with the IMF in order to support their currencies from collapsing and to mitigate major balance-of-pay-ments defi cits. Further consolidation of the banking sector and supplementary stimulus measures could, together with baseline expectations of global recovery in 2009, brighten growth prospects for the CIS in 2010. Risks for a prolonged slump remain, however, if there is no global recovery. Rising social unrest and political turmoil already observed in parts of the CIS, have added to the already substantial degree of economic uncertainty.

In South-eastern Europe, growth weakened notably in the last quarter of 2008 and decelerated further through 2009. Th ese economies suff ered massive setbacks owing to shrinking exports, lower foreign direct investment, and portfolio capital infl ows, de-clining remittance infl ows, slowing domestic credit growth, and the higher cost of external fi nancing. As a result, the combined GDP of the region is expected to decline by 1.9 per cent in 2009 and to recover by 1.0 per cent in 2010 in the baseline. In an optimistic sce-nario, assuming a sooner-than-expected upturn in the EU, regional growth might reach 1.8 per cent in 2010. Without global recovery, however, the economies of South-eastern Europe should also expect to face a prolonged recession.

Developing economiesGrowth in Africa is sharply decelerating, mostly driven by collapsing world trade and commodity prices, lower foreign direct investments, subsiding remittances, and falling tourism revenues. In 2009, GDP growth is expected to slow to 0.9 per cent, down from 4.9 per cent in 2008. Oil exporters are severely hit by the sharp drop in hydrocarbon prices. Th e economies of Angola and Nigeria, for instance, are expected to contract by 4.2 and 0.5 per cent, respectively, in 2009. South Africa is falling into recession because of falling global demand which is hurting its manufacturing sector in particular. Other manufactured exporters, such as Botswana, Mauritius, Morocco and Tunisia, are suff er-ing similarly from the recession in Europe and the United States. Net food exporters in the region are less aff ected as the demand for food products has been relatively inelastic to the global downturn, though these countries are facing lower export prices compared with 2008. Net food and energy importers in the region face strongly declining demand for their exports, which is only partially being off set by improved terms of trade because of the decline in world food and oil prices. Despite falling world market prices, infl ation


is expected to remain high in the countries of the region at around 10 per cent in 2009. Emerging balance-of-payments problems have caused strong currency depreciations in many African countries, pushing up domestic prices of imported goods, including food prices. Unemployment and precarious employment are on the rise as lower export earnings and government revenue are aff ecting all economic activity. Also, economies with large subsistence agriculture sectors that would seemingly insulate them from a global economic downturn are being hit hard, as their cash economies are heavily dependent on a few ex-ports, including niche export industries such as textiles, cut-fl owers, vegetables, and tour-ism. Conditional on global recovery, Africa’s growth is expected to pick up in the second part of 2010 in the baseline scenario. However, real threats are looming if the recovery of the global economy is postponed and aid fl ows stagnate.

Despite seemingly strong macroeconomic fundamentals, East Asia has suff ered a severe economic downturn since September 2008. GDP growth in the region is expected to slow from an average of 6.1 per cent in 2008 to 3.0 per cent in 2009. Over the past six months, collapsing fi nal demand in developed economies, combined with major rever-sals of capital fl ows, have led to sharp contractions of exports, industrial production and investment spending in most countries of the region. Also, China is expected to register much slower growth in 2009 than in recent years. With output plummeting, the number of layoff s has increased markedly in the region. So far, offi cial labour market statistics do not reveal the full magnitude of the crisis, with most of the surge in unemployment likely to come in 2009. After peaking in mid-2008, infl ation has declined rapidly owing to the drop in commodity prices and the slowdown in domestic demand. Infl ation is likely to continue to fall throughout 2009. In the baseline forecast, regional economic growth is expected to return to a relatively robust 5.6 per cent in 2010, led by a recovery of domestic demand in China fuelled by the massive fi scal stimulus package the country is imple-menting. Th e region’s growth recovery would further depend on recovery in developed economies.

Most economies of South Asia were hit by the global fi nancial and economic crisis at a time when they were still struggling with the adverse eff ects of high food and energy commodity prices, causing strongly widening external and fi scal defi cits and pushing up domestic infl ation. As access to external borrowing dried up in the second half of 2008, external vulnerabilities became apparent in several countries, most notably in Pakistan where a balance-of-payments crisis was averted through an IMF-supported $7.6 billion emergency package. Nonetheless, the downturn in South Asia is expected to be less severe than in some other developing regions since exports account for a smaller share in GDP and domestic demand is anticipated to hold up reasonably well. Average growth in the region is expected to drop from 6.8 per cent in 2008 to 4.1 per cent in 2009 before recovering to 5.4 per cent in 2010. In India, export demand is weakening rapidly, but increased government expenditure and resilience in domestic consumption will help mitigate the slowdown. Th e slowdown is exerting strong pressure on the labour markets in the region, resulting in increased unemployment, underemployment and working poverty. Meanwhile, infl ation fell markedly in recent months, after trending upward in 2008. Th e scope for fi scal stimulus across the region is limited, however, owing to sizeable budget defi cits of recent years that have led to high levels of public debt. Even so, Bangladesh, India and Sri Lanka have announced fi scal stimulus packages to cushion the downturn. Th ere are substantial downside risks to the economic outlook, including a further deterioration


of global economic conditions. Th is could lead to massive capital outfl ows from the region, especially from India, which in turn would put further pressures on national currencies to depreciate and constrain domestic demand.

After achieving GDP growth of 4.5 per cent in 2008, Western Asian economies will contract by 0.7 per cent in 2009 and, with global recovery, return to positive growth of 2.9 per cent in 2010. Th e fall in oil prices and cuts in oil production are major driving forces for the regional slowdown, with Saudi-Arabia, Kuwait and the United Arab Emir-ates expected to see their economies contract in 2009. If oil prices stabilize at a somewhat higher level in 2010, this should also help bring growth in the oil-exporting economies back to moderate positive territory. Qatar and Yemen are expected to be positive outliers owing to the start-up of major energy projects. Th e same holds for Iraq where the improved security situation should facilitate some economic catch-up despite the global crisis. In the non-oil exporters of the region, the sharp contraction in global trade and a marked slowdown in tourism will depress overall economic activity. Weakening economic activity and rapid growth of the labour force underpin rising unemployment rates throughout the region, putting additional strains on fi scal budgets through increased spending on social benefi ts and measures aimed at employment creation. Remittances, especially from work-ers in the oil-exporting economies, are expected to fall, putting pressure on household incomes and consumption. Infl ation has been falling due to economic slowdown, lower commodity prices and, in the case of pegged currencies, the strengthening of the dollar. Th is trend is expected to continue in 2009 in view of weak domestic demand. In 2010, stabilizing economic activity will support moderate price increases. Th e regional outlook is subject to two notable risk factors. Lower-than-expected crude oil prices would directly aff ect growth of the oil-exporting countries, while a steeper or prolonged contraction in global demand would aff ect all economies in the region.

Economic activity in Latin America and the Caribbean deteriorated rapidly at the end of 2008, dragged down by weakening external demand and rapid contraction of domestic demand due to tight credit conditions and fears of growing unemployment. After fi ve consecutive years of growth of more than 4.0 per cent per annum, GDP will fall by 1.9 per cent in 2009, before rebounding to 1.7 per cent in the baseline forecast for 2010. Mexico and Central America are expected to be hit hard, given their strong dependence on manufactured exports to and workers remittances from the United States. Most South American countries are dependent on primary exports and will be aff ected most by lower commodity prices. Capital reversals and the rising costs of external borrowing are aff ect-ing domestic activity and private investment, despite swift policy responses in some coun-tries, such as Brazil in the last quarter of 2008. Th e Caribbean will see a mild growth in 2009, refl ecting relatively strong economic performance in Cuba, expected from the eas-ing of US restrictions on Cuba’s economy. Unemployment is expected to rise signifi cantly throughout the region in 2009, reversing the trend of formal sector job growth in the past fi ve years. Th e prospects for economic recovery in the region in 2010 will be highly depen-dent on global conditions. Should the world economic recession prolong and commodity prices weaken further, exports will stay down, causing further balance-of-payments prob-lems, weakening national currencies and discouraging capital infl ows.


Rapidly deteriorating global economic environment for developing countries

Since late 2008, the fi nancial crisis intensifi ed in major developed economies and spilled over into the developing countries and economies in transition through international fi -nancial and trade channels. While private capital and trade fl ows to developing countries have fallen precipitously, international prices of primary commodities have collapsed. Th is inauspicious international economic environment is expected to persist during 2009 and could even protract, posing tremendous challenges to developing countries in fi nancing investments for long-run sustainable growth and development.

Sharp reversal of private capital infl ows and rising costs of external fi nancing

Net private capital infl ows to emerging economies (which consist of some 30 large devel-oping countries and economies in transition) are estimated to have declined by more than 50 per cent during 2008, dropping from the peak level of more than $1 trillion in 2007 to less than $500 billion. A further dramatic decline of 50 per cent is expected for 2009.

Among all the components of net private capital infl ows, the sharpest drop was in bank lending to emerging economies, reversing infl ows of about $400 billion in 2007 into a projected net outfl ow in 2009. Economies in transition, including the Russian Federation and Ukraine, and several economies in Central and Eastern Europe have experienced the most drastic reversal in international bank lending. Net portfolio equity investments reversed to outfl ows from emerging economies, as international in-vestors reacted aggressively to the sell off in the equity markets worldwide. While FDI fl ows are less volatile than other components of private capital fl ows, they also declined by 15 per cent in 2008.3

While small in global terms, Africa has also been relying increasingly on pri-vate capital infl ows. Given the size of most domestic capital markets, even a small decline in these fl ows could have a sizeable impact on securities’ prices. Th ere have been no inter-national bond issues by African countries in 2008 as a consequence of the global credit crunch. Kenya, Nigeria, Tanzania, and Uganda have already had to cancel plans to raise funds in international capital markets for infrastructure projects.

In the outlook, net private capital fl ows to developing countries and economies in transition are expected to scale back further in 2009-2010. Institutional investors in developed countries are expected to continue reducing their exposure in emerging econo-mies, while international banks may further curtail their cross-border lending. Various banking rescue measures adopted in developed countries might in eff ect exacerbate this trend. FDI is also not expected to recover amidst falling global capital spending, sharp decline in corporate profi ts, the continued downtrend in primary commodity prices and weakening real estate prices in emerging economies.

3 UNCTAD (2009) Assessing the impact of the global fi nancial and economic crisis on FDI fl ows, Geneva (UNCTAD/DIAE/IA/2009/3).


External fi nancing costs for emerging economies and other developing countries have surged since late 2008. Th e Emerging Markets Bond Index (EMBI), soared from 250 to about 800 basis points within a few weeks in the third quarter of 2008. Th e latest surge has been uniform, suggesting that contagion and generalized aversion to investing in emerging markets has taken hold among investors.

Th e shortage of aff ordable fi nancing will have major repercussions for infra-structure spending, which is critical for longer-term growth. Investments in public and private infrastructure projects in sub-Saharan Africa and Latin America declined substan-tially after various crises and fi scal adjustments in the 1980s and 1990s, while infrastruc-ture investment also dropped substantially after the fi nancial crisis of the late 1990s in East Asia and had not recovered to pre-crisis levels by 2007. Maintaining, constructing or rehabilitating much needed public infrastructure is critical to sustained development and growth, including by infl uencing the location of new private sector activities.

World trade is collapsing and remittances are subsiding

Collapsing world trade is hurting developing countries disproportionately hard. Trade fl ows worldwide sharply declined from the end of 2008 and have continued to decline in the fi rst quarter of 2009 at an annual rate of more than 40 per cent in the three months up to February 2009. For the year 2009, the volume of world trade is expected to fall by 11 per cent, the largest annual decline since the Great Depression of the 1930s. Th e im-pact of falling global demand is compounded by a drying up of trade fi nance and a rise in protectionist trends.

Th e sharpest declines in trade have been observed among Asian economies, in some cases at annualized rates of 50 per cent or more. Also China (23 per cent in April 2009) and India (2 per cent) have registered signifi cant year-over-year declines in their exports for the fi rst time in decades. Also imports from these countries are falling sharply, which—together with the drop in demand in industrialized countries—is aff ecting com-modity exports by low-income countries.

Sharp declines in commodity prices compound the adverse impact for many developing countries, especially those heavily dependent on primary exports. From 2002 to mid-2008, many countries gained from the upward, albeit volatile trend in the prices of oil and non-oil commodities. Th e intensifi cation of the global fi nancial crisis since mid-2008 has led to a sharp reversal of this trend. Oil prices have plummeted by more than 70 per cent from their peak levels of mid-2008. Prices of metals dropped by 50 per cent. Also, those of other commodities, including basic grains, declined signifi cantly. Although these prices are showing some stabilization in the fi rst quarter of 2009, no signifi cant rebound is expected in the outlook, continuing to depress export earnings and government revenues in many developing countries. Food and energy-importing countries may see their terms of trade improve, though in most cases, this gain will be more than off set by the collapse in export demand, rising costs of borrowing and/or falling remittance fl ows. Among net exporters of commodities, low-income countries are being hit hardest by plunging world market prices, as primary exports comprise on average 70 per cent of their total exports and also a high share of government revenue comes from these exports.

Remittances to developing countries have also moderated signifi cantly. Totalling more than $300 billion in 2008, or three times the Offi cial Development Assistance (ODA)


fl ows to developing countries, remittances have been important sources for supporting con-sumption and broad development. For several small economies, remittances account for more than 20 per cent of their GDPs. Remittance fl ows used to be relatively stable, and even counter-cyclical. Facing the severe global fi nancial crisis, however, these fl ows are ex-pected to fall in 2009, particularly in Latin America and Caribbean, South Asia and some CIS countries, such as the Republic of Moldova, Tajikistan and Kyrgyzstan, though the decline is expected to be much smaller than that of other foreign-exchange earnings.

Mounting balance-of-payments problemsTh e severe external shocks are heavily impacting on the balance-of-payments positions of emerging economies and other developing countries. Prior to the eruption of the global fi nancial crisis, many developing countries and economies in transition had accumulat-ed signifi cant foreign reserves, totalling more than $4 trillion in 2008. Since mid-2008, however, a sharp reversal of capital infl ows and deteriorating current accounts have led to a decline in the foreign-exchange reserves of many of them, except for China and a few other Asian economies. Capital fl ight and attempts at defending national currencies from precipitous depreciation have also caused large depletions of foreign reserves of some economies, such as the Russian Federation.

Reserve accumulation by developing countries in the past decade was seen to be ‘excessive’ until recently, but in many cases, is now swiftly proving to be highly insuffi -cient for ‘self-protection’ given the magnitude of the external shocks caused by the present global fi nancial and economic crisis. In 2009, more than 100 developing countries would have inadequate current account surpluses to cover private debt due, and a fi nancing gap ranging between $200 billion and $700 billion is expected. Reserves of some 30 low-income countries have dropped to below the critical level of three months of imports.

Currencies of many developing countries are under pressure. Both the dete-riorating external conditions and the appreciation of the United States dollar caused by deleveraging the fi nancial system and carry-trade speculation since August 2008 have led to depreciating currencies of developing countries. Numerous middle- and low-income countries have seen large devaluations over the past 6 to 9 months, sometimes as big as between 20 and 50 per cent. Th e exchange-rate depreciations have made external debt ser-vice obligations much more expensive in terms of local currency and are already aff ecting the budget positions of governments and businesses. Th ese factors are also putting debt sustainability under severe stress in many developing countries. Many developing coun-tries face diffi culties rolling over their foreign debts, with some $3 trillion of emerging-economies’ foreign debt maturing during 2009. Many low-income countries are also at increased risk, including those that have received substantial debt relief under the heavily-indebted poor countries (HIPC) initiative. Recent data also show that about one-third of low and middle-income countries in sub-Saharan Africa have external debt-to-GNP ratios of more than 50 per cent, and debt service-to-GNP ratios of more than 2 per cent, which would classify these as vulnerable to external shocks and at risk of debt distress.

To compensate for the decline in private capital fl ows to developing countries, and to provide additional resources to mitigate the impact of the fi nancial crisis on their ef-forts to achieve the MDGs, increased offi cial fi nancing will be needed. Prior to the crisis, ODA fl ows to developing countries were falling measurably during 2006-2007. In 2008, aid fl ows from DAC donors increased again, reaching almost $120 billion. Th e crisis may put


downward pressure on aid fl ows as many donors target annual aid fl ows as a share of their gross national income (GNI), such that the value of aid will fall with income even if the share stays fi xed. Even though donor countries have repeatedly reiterated their ODA commitments, timely follow through on these may still be disrupted if the present crisis is protracted.

Meanwhile, the IMF and World Bank have signifi cantly stepped up lending operations. By April 2009, a dozen emerging economies received emerging fi nancing from IMF programmes, totalling some $50 billion. Th e Fund has also increased lending to low-income countries, but still lacks the resources to double lending capacity to $23 billion, well short of what is needed.

At their London Summit in April 2009, the leaders of the “Group of 20” agreed to provide $1.1 trillion in international fi nancial support for countries with external fi nanc-ing problems, including tripling the resources available to the IMF to $750 billion (includ-ing a new SDR allocation of $250 billion), additional lending by multilateral development banks of at least $100 billion, and support of trade fi nance of $250 billion. While signifi -cant, it may not be enough to meet the challenges posed by this worldwide crisis.

Policy challengesSince the intensifi cation of the fi nancial crisis in September 2008, Governments world-wide have made massive public funding (amounting to $18 trillion or almost 30 per cent of WGP) available to recapitalize banks, taking partial or full government ownership of ailing fi nancial institutions and providing ample guarantees on bank deposits and other fi nancial assets. Further, recognizing that monetary and fi nancial measures will not be enough to stave off a recession, many countries have also adopted fi scal stimulus plans, totalling about $2.6 trillion (about 4 per cent of WGP), but to be spent over 2009-2011. While signifi cant, this may still fall somewhat short of the stimulus of 2-3 per cent of WGP per year that would be required to make up for the estimated decline in global ag-gregate demand.

More concerted action will be needed in four major areas.First• , further decisive and cooperative action is needed to restore the fi nancial health of banks, especially in developed countries. As indicated, despite the unprecedented support given so far, problems in fi nancial sectors remain and additional eff orts for adequate recapitalization of banks will be needed to fa-cilitate resumption of domestic and international lending. Without this, the fi scal stimulus is not likely to be very eff ective.Second• , the fi scal stimulus measures should be better coordinated and aligned with global sustainable development objectives. Th us far, there has been no true coordination of the fi scal measures being undertaken by national govern-ments. Without adequate coordination, the stimulus measures may fall short of what is needed. Without coordinating the size and timing will limit the multiplier eff ects of the stimuli, thus reducing the impact on global economic growth and employment. Further, importantly, more than 80 percent of the stimulus is being undertaken by the major developed countries. Facing a stron-ger downturn and with greater response capacity, most countercyclical eff orts should indeed originate in those countries, but this does not ensure adequate rebalancing of the global economy. Moreover, since much of the stimulus will


come from the major defi cit countries, without corrective action, this would perpetuate the problem of the global imbalances (see box 2). Meanwhile most developing countries lack the resources to undertake needed countercyclical measures for their economies. While signifi cant, the additional internation-al liquidity to be provided by the international community as agreed by the “Group of 20”, is insuffi cient to give developing countries the resources they need to ensure a more balanced global stimulus aligned with long-term devel-opment needs.4 Another concern is that many of the stimulus packages imply (often unintended) unfair trading practices by providing subsidies and incen-tives to domestic fi rms. Th e implication is that this may constrain recovery of economies that do not have the resources for fi scal stimulus and support to domestic industries. Global coordination should also deal with this concern.

Simulations with UN-DESA’s Global Policy Model suggest that a more balanced and coordinated global macroeconomic stimulus as suggested would

4 Much of the $1.1 trillion would be allocated in accordance to existing quota in the IMF and most will be for short-term emergency lending, implying only a minor part will become directly available for long-term development fi nancing in middle- and low-income developing countries. See also Report of the Secretary-General on the World Financial and Economic Crisis and its Impact on Development (A/CONF.214/4).

Disorderly adjustment of global

imbalances poses a continued risk

The present crisis emerged from an unsustainable pattern of global growth, which manifested itself,

among other things, in widening global fi nancial imbalances with increasing current account defi cits

of the United States fi nanced through rising surpluses in China, Japan, some European countries,

major oil exporters and several developing countries. As this pattern prolonged, the risk of a steep

depreciation in the world’s main reserve currency, the United States dollar, heightened. In fact, prior

to the present crisis, the dollar had indeed weakened signifi cantly and showed increased volatility

against other major currencies.

The global imbalances have narrowed visibly in 2008. Unfortunately, however, this is

a result of a defl ationary process caused by collapsing trade and worldwide fi nancial deleveraging

rather than the outcome of more benign adjustment. As a consequence and in view of insuffi cient

coordination of stimulus packages among the major economies, the risk of major exchange-rate

volatility, including a dollar collapse, has increased rather than decreased.

The United States external defi cit narrowed to $670 billion in 2008, and is expected to

decline further to about $400 billion in 2009. Among the originally major surplus economies, the euro

area has shifted into defi cit, while Japan’s large surplus has almost completely vanished since mid-

2008. Surpluses of the oil-exporting countries also have declined substantially. Only China’s surplus

has continued to grow (to $420 billion in 2008), as imports have fallen more steeply than exports.

The impact of the fi scal stimulus packages adopted by the major economies on the

global imbalances is uncertain. In the case of the United States, however, it is expected that the

Federal government defi cit will increase to about $1,580 billion (11.3 per cent of GDP) in 2009, up

from $450 billion (3.1 per cent of GDP) in 2008. Increased US household savings (up by about 4 per

cent of GDP) will help fi nance part of the increase in the fi scal defi cit, but the remainder (about half)

would need to come from foreign savings or additional money printing. Either way, this likely will put

renewed downward pressure on the dollar as investors may increasingly fear for future losses in their

dollar asset holdings. Without adequate coordination of the fi scal stimulus packages worldwide and

the way these are fi nanced, uncertainty about the unwinding of the global imbalances could thus

become a source of further fi nancial instability.

Box 2


yield signifi cant global growth gains compared with a scenario of uncoordinated stimuli as implied by the existing fi scal stimulus packages being individually undertaken by national governments. In the coordinated scenario, the stimulus eff orts by countries which now have large external surpluses would be larger than is currently the case, while additional resource transfers would be made available to developing countries for development fi nancing (about $500 billion extra over 2009-2012 compared with the uncoordinated scenario).5 Th e additional resource transfers needed would include about $50 billion for the LDCs. Apart from supporting the countercyclical responses of developing countries by strengthening of their social protection systems and making long-term investments in sustainable development, the coordinated scenario would also include concerted eff orts to provide countries with greater access to developed country markets as envisaged in a truly developmental Doha Round of multilateral trade negotiations. In such a coordinated, development-oriented policy scenario, the world economy would recover to an annual growth rate of around 4-5 per cent in 2010-2015, led by robust growth of about 7 per cent per year in developing countries (fi gure 2). In the uncoordinated scenario, developing country growth would recover to only 3-4 per cent per year.

Developed countries clearly also gain from the proposed policy coordi-nation and would see GDP growth accelerate to about 4 per cent per year, up from 2-3 per cent in the uncoordinated scenario. Furthermore, the simula-tion results for the coordinated policy scenario predict a benign unwinding of global imbalances, keeping external asset and liability positions of major econ-omies in check, which would in turn support greater exchange-rate stability. Th e additional transfer of resources developing countries would thus seem to have a high pay-off worldwide. Of course, it will require, (global and national) conditions to eff ectively use them. Policy coordination needs to be accompa-nied by monitoring mechanisms to ensure accountability and this credibility for the concerted eff orts.Th ird• , fundamental reforms of the international fi nancial system are needed to overcome the systemic fl aws which caused this crisis in the fi rst place and in order to guard against future crises. Without elaborating in detail here,6 such reforms should fi rst deal with the major weaknesses in the regulation and supervision of the international fi nancial system. Existing mechanisms are now generally seen as insuffi cient for mitigating the inherent pro-cyclicality of the fi nancial system, which tends to foster asset price bubbles. A macro-prudential regulatory system needs to be created, based on countercyclical capital provisioning, to develop institutions for the supervision of all fi nan-cial market segments concentrating systemic risk, including hedge funds and cross-border fl ows.

5 The uncoordinated scenario is similar to the assumptions of the baseline forecast as presented in table 1, but adds the potentially adverse eff ects on global trade and its bias against developing countries of the protectionist elements contained in the stimulus and fi nancial rescue packages.

6 See World Economic Situation and Prospects 2009, United Nations publication, Sales No. E.09.II.C.2; UNCTAD (2009) ‘The Global Economic Crisis: Systemic Failures and Multilateral Remedies (UNCTAD/GDS/2009/1) and Report of the Secretary-General on the World Financial and Economic Crisis and its Impact on Development (A/CONF.214/4).


Figure 2Economic recovery under coordinated and uncoordinated global stimulus, 2009-2015

Source: UN/DESA, based on policy stimulations with the UN Global Policy Model.

Developed countries

-5

-4

-3

-2

-1

0

1

2

3

4

5

2007 2008 2009 2010 2011 2012 2013 2014 2015

Developing countries

0

1

2

3

4

5

6

7

8

9

2007 2008 2009 2010 2011 2012 2013 2014 2015

-3

-2

-1

0

1

2

3

4

5

6

2007 2008 2009 2010 2011 2012 2013 2014 2015

World

Uncoordinated stimuli

Coordinated global stimuli

Economies in transition

-4

-2

0

2

4

6

8

2007 2008 2009 2010 2011 2012 2013 2014 2015

Least developed countries

0

1

2

3

4

5

6

7

8

9

10

2007 2008 2009 2010 2011 2012 2013 2014 2015


Strengthened international tax cooperation should form a critical ele-ment of a more eff ective global system of fi nancial regulation. Such coopera-tion should help reduce tax evasion which is often linked with money launder-ing, corruption, fi nancing of terrorism, and drug traffi cking. As tax evasion is pervasive, improved tax coordination to combat it should also help boost the fi scal capacity of governments worldwide, which in turn would enhance fi nancing available for recovery and development. For developing countries, it will be critical to establish an international mechanism for sovereign debt restructuring and relief based on a fl exible approach towards debt sustain-ability while providing additional funding. As analyzed, the balance of pay-ments of many countries is rapidly deteriorating because of the global crisis, while Governments will need to undertake massive countercyclical responses. Where needed, standstill agreements and temporary moratoriums on existing debt-payment obligations should be part of the package to give countries some additional fi nancial breathing space. Th is would also reduce requirements for new funding. Beyond this immediate need for action, an orderly sovereign debt workout mechanism and an improved framework for handling cross-bor-der bankruptcies are needed.

Most fundamentally, a new global reserve system which no longer relies on national or regional currencies as the major reserve currency must be cre-ated. Overcoming the major insuffi ciencies of the current system requires a set of broad reform measures. A new system which allows for better pooling of reserves at the regional and international levels and which is not based on a single or even multiple national currencies needs to be developed. It should permit the emission of international liquidity (SDRs or some equivalent there-of) so as to create a more stable global fi nancial system. To make such a more prominent role of SDRs eff ective, it would need to be accompanied by further reform and policy measures.Fourth• , a new framework for global economic governance in line with early 21st century realities needs to be created. Fundamental reform of the governance structure of the Bretton Woods institutions is needed. At the Doha Confer-ence on Financing for Development, Member States agreed in December 2008 that such a reform must be comprehensive so that they can more adequately refl ect changing economic weights in the world economy, be more responsive to current and future challenges and strengthen the legitimacy and eff ective-ness of these institutions. Existing inequities in voting weights in these in-stitutions prevent them from incorporating the needs of users of their funds adequately in their operations and are in confl ict with their public character and role as facilitators of international cooperation. Th ese reforms should also lead to the establishment of a credible and legitimate mechanism for improved international coordination of macroeconomic policies. Th e global responses so far have been concerted at the level of the G7, G8, G20 or other ad hoc fora, lacking the participation or representation of important parts of the inter-national community, especially from developing countries. Institutionalized macroeconomic policy coordination should be embedded in a more represen-tative multilateral framework. Th e IMF could provide such a platform follow-ing adequate reform of its governance structure and revision of its functions.


Its policy making body, the International Monetary and Financial Committee (IMFC) could be tasked with mediating agreements of international policy coordination, including measures to guard against policies that can lead to unsustainable imbalances at the global level.Broader global economic governance reforms must also be considered to en-

sure coherence in the global governance of the international fi nancial architecture, the multilateral trading system, the framework for addressing climate change, the develop-ment agenda, and peace and security. Such coordination could take place through a new Global Economic Council that is part of the UN system, as proposed by some Member States, or through deep reform of the UN’s Economic and Social Council. Whichever the mechanism, it is essential that a body be created which can provide coordination and oversight of responses to the broader range of global challenges and set the world on a new but sustainable development path.

For further information,

see http://www.un.org/esa/policy/wess/wesp.html

or contact

Rob Vos

DirectorDevelopment Policy and Analysis DivisionUnited Nations Department of Economic and Social Aff airs2 United Nations Plaza, Room DC2-2020New York, NY 10017, U.S.A.

Tel: +1 212 963.4838 Fax: +1 212 963.1061 e-mail: [email protected]

Documents

World Economic Situation 2009